Simon Nicolas: The ticking time bomb that threatens media ad revenues

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If the Conservatives return to power at the next general election they will reduce spending on government advertising to 1997 levels in real terms, taking a scythe to the COIs (Central Office of Information) current spending spree on marketing, advertising and public relations.

Under the Labour government such expenditure has grown from £81.2m in 1996-97 to £265.8m in 2007-08. This figure actually rises to £391m when all marketing activity is taken into account.

The Tories claim that cuts can be made to the COI budget to help councils freeze council tax whilst protecting spending on vital public health and safety campaigns. Either way the advertising and media industries will be hit hard. The COI has the largest media budget in the country, even outstripping companies like Procter & Gamble, and media owners rely on the windfall.

TV companies, which receive £55m annually from the COI could see their share hugely reduced. This is likely to compound their already precarious state with many reporting a reduction in revenue of 30 per cent over the last year. The COI's annual £30m press budget is also likely to see marked reductions, hitting titles particularly hitting titles such as t he Guardian, which has traditionally carried large amounts of government advertising. The beleaguered commercial radio sector currently earns a hefty £42m of COI media spend.

Companies, such as Carat, that plan and buy the media for the COI must also be thankful for the respite of no imminent general election, thought the respite is likely to be brief.

Though the Newspaper Marketing Agency says that press ads can be more succinct than online ones in reaching the desired demographic, other observers believe that he companies most likely to enjoy the benefits of any restructuring of the COI budgets will be digital agencies that respond to online searches made by consumers. The digital market already accounts for £35m of the COI spend which is up over 57 per cent on the previous year. "Search allows consumers to both pull information relevant to them whilst allowing companies to push their message via ppc (pay per click) advertising," says Paul Mead, managing director of VCCP Search. "There is the added advantage that the COI would only pay for what is viewed, heavily reducing wastage that is so inherent in TV campaigns."

The advertising agency M&C Saatchi has focused on television advertising for much of the £75m Change4Life health campaign. Future government campaigns might be much more low budget and very different. Simon Tunstill of Thinkbox, the marketing body for the main UK commercial broadcasters, is among the represents of traditional media who hope that the COI will not be forced to change its methods altogether. The most effective advertising campaigns, he insists, are integrated ones. "The internet and TV are complementary; they do different things for advertisers."